SanDisk 2004 Annual Report Download - page 71

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Table of Contents
Notes to Consolidated Financial Statements — (Continued)
The Company’s provision for income taxes differs from the amount computed by applying the federal statutory rates to income
before taxes as follows: January 2, December 28, December 29,
2005 2003 2002
U.S. Federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 2.1 3.2 1.1
Utilization of credits and impact of new tax law (0.2) (0.5) (6.8)
Reversal of tax benefit previously taken on UMC shares — 13.8 —
Tax exempt interest income (0.5) (0.4) (2.5)
Utilization of loss carryforward and change in valuation
allowance — (19.3) (17.6)
Other 0.6 (1.6) 0.2
37.0% 30.2% 9.4%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax return reporting purposes. Significant components of the Company’s
deferred tax assets as of January 2, 2005 and December 28, 2003 were as follows (in thousands):
January 2, December 28,
2005 2003
Deferred tax assets:
Inventory valuation $ 15,800 $ 11,500
Deferred revenue recognized for tax purposes 38,400 43,500
Accruals and reserves not currently deductible 51,300 28,500
Foreign tax credit and other credit carry−forwards — 12,700
Net operating loss carry−forward — 1,300
Unrealized loss on permanent impairment of investment in foundries 16,600 12,300
Other 1,200 1,485
Subtotal: Deferred tax assets 123,300 111,285
Valuation allowance for deferred tax assets (12,300) —
Total deferred tax assets $ 111,000 $ 111,285
Deferred tax liabilities:
Unrealized gain on sale of foundry shares (29,100) (24,500)
Fixed assets and other 3,100 (8,052)
Total: Deferred tax liabilities (26,000) (32,552)
Total net deferred tax assets $ 85,000 $ 78,733
At January 2, 2005, $12.3 million valuation allowance was provided based, more likely than not, on our inability to recognize
certain unrealized capital losses on the Company’s investments in Tower. At December 28, 2003, based on the weight of all available
evidence, the Company carried no valuation allowance on the net deferred tax assets.
During the current and prior years, the Company has not made a determination under Accounting Principles Board Opinion No. 23
to permanently reinvest earnings of its foreign substantives.
F−25